Precious Metal Prices Jump Following ESM Decision

On Wednesday, after Germany’s ruling by its Constitutional Court to allow a permanent euro-zone bailout fund to move ahead, gold futures jumped to a new six-month intraday high from a declining dollar.

According to Dow Jones, the December contract, which is the most-actively traded one, rose $6.70 (0.4%) to $1,741.60 per ounce on the Comex. On the futures side, gold jumped to $1,749.50 per ounce.

This represents its greatest intraday price, last seen on Feb. 29.

Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) wrote in a research note after the ratification of the European Stability Mechanism, “Along with a positive ruling from the German court, we are optimistic that the euro area is moving further along the road of integration and less instability.”

It added that a stronger euro would be beneficial to precious metals.

But it was a short rally for gold on Wednesday as it awaits Thursday’s statement from the Federal Reserve meeting. Futures have remained higher than $1,700 per ounce since last Friday, on the hopes that the central bank will add new stimulus measures.

Commerbank said of this week’s possible actions to Reuters, “The euro-bailout measures and the opening of the monetary-policy floodgates by the central banks are likely to result in higher inflation in the medium to long term, which should benefit gold, in particular, as a store of value and alternative currency.”

Also affecting gold prices and the gold-mining sector, are the South African strikes. At the Gold Fields Ltd. (GFI, GFI.JO) mine, 15,000 workers have gone on strike. The country represents the world’s fifth-biggest producer of gold, so there’s less of a worry of the strike affecting gold prices in the short-term.

Meanwhile, silver fell 1.3 percent to $33.01 an ounce after the ESM news. This comes as the precious metal hit a 5-month high in the past week. Investor interest had been on the rise for the metal, with the potential for the Federal Reserve’s possible monetary easing.

Previously, investors had been on the sidelines for silver in the last few months, but recently it’s been volatile, gaining appeal. Bulls have been heard, trying to enter the scene.

In the last month, silver prices jumped more than 20 percent. Its gains have outpaced gold’s, which saw a 10 percent increase during the same time period.

Also to note, which is important for investors, is the ratio between the two precious metals. Since mid-August, it has moved about 10 percent in silver’s favor, reported ETF Daily News.

Since the beginning of the year, this represents the first time that silver has outperformed its fellow precious metal.

Depending on Thursday’s news from the Fed, silver could start rising again.